Insights

Procurement important topics 2019

May 2, 2019 | Supply Chain Management

As tough times are coming (at least it is forecasted for 2020, and we can see some changes already starting from end of 2018), the Procurement area will be one of the important areas for a lot of companies.

Most important topics for 2019 for Procurement

  1. Risk management. Capital cost to be lowered because of risk of next crisis? How to be with stock/inventories?
  2. Focus on indirect spending, and on total landed costs
  3. Effective Change Management
  4. Have a digital strategy available
  5. Artificial Intelligence Systems to support a better and easier process for Procurement Team

Risk management. Capital cost to be lowered because of risk of crisis/market changes? How to be with stock/inventories?

On the beginning of my carrier, I participated on a project, which was guided by consultants. The target was to drastically reduce stocks within a shorter period of time, because of the market situation, which influenced the industry fully. Consultants did their job according the contract – reduced the stock to an agreed amount.

The situation after this was quite critical for the whole company – Customers still required their products (obviously) and made changes in the orders. In the same time the Suppliers were not able to react in that short period of time for the changes.

So, that time we spent high costs on

  • special freights from suppliers
  • special freights to customers
  • overtimes
  • quality costs of “urgent products”

and solving a lot of issues with Customers. Which finally were solved, but with high costs.

Crisis management requires experience and understanding the «BIG PICTURE».

It should be done with reflection to the processes and looking to all costs and the situation exactly for this company, after reduction (special freight, overtimes, quality, customer claim, etc.). Looking not just to costs, but to soft factors. Copy/paste here does not work.

Already now, knowing that such time is coming (at least this is prognosed for 2020) – better to be prepared. Prepare the team, the possible scenarios, how these scenarios should be addressed, and which solutions exist, which information’s shall be followed up and tracked (to understand the current state).

What is important?

  • Risk Assessment
  • Knowing the contractual rules and flexibility with Suppliers
  • Knowing the contractual rules with Customers
  • Match them, discuss with Suppliers
  • Prepared detailed scenarios
    • How to deal with suppliers
    • How to deal with customers (separate the customers and the scenarios in different situations)
    • How to make the transportation (different variants by lead-time, cost)
    • How to make the capacity planning (in case of manufacturing)
    • How to make the production planning (in case of manufacturing)
    • ….
  • Prepare the team, train each team to these scenarios
  • Follow the Customer orders behavior in regular manner, with statistics, analytics – reported through organization for decision makers also

It is really important to take not only Procurement in such cases. Of cause reduction of stock somehow will be performed, in the same time other spending will eat all the results, and make customers mad.

 

Focus on indirect spending, and on total landed costs

Indirect costs related to Procurement:

  • Personnel
  • Transport
  • Customs
  • Supplier Lead-Times and Flexibility
  • Re-packing and additional handling of parts (depending on the original supplier packaging/versus needed quantities)
  • Slow moving parts
  • Obsolescence parts
  • Scrap of material, in some cases (for example size of purchased materials create leftovers)

Procurement team by themselves, will not be able to control mentioned costs and make an impact.

 

Effective Change Management

In every case it means different activities and approach’s.

In case of change management an important point is a good process with the software behind the change management, which is also working (or at least receiving information’s/have an interface) with the main systems/software solutions in the company. There are so many solutions, but during last 20 years I saw a lot of time, that companies did not fully worked through the detailed requirements. Almost all of the departments of the company are involved in this process, especially because of this – it is quite complicated to do a good solution satisfying each.

Another point is that the companies are usually have limited personnel resources for such tasks on board (naturally – to pay out this continuously it is costly, and for this task is needed only for a period for process description and discussion of possible solutions + implementation). Because of limited resources needed for such kind of projects or the company decides on taking additional support, or the implementations and changes usually becoming long-time projects. Which is loss at the end of the day, because without good and updated change management process and system – the spent is not on the implementation, but on

  • Materials,
  • Scrap,
  • Over usage,
  • Slow moving,
  • Obsolescence,
  • etc…

A good and effective change management process could come only after a good audit and understanding all of the processes and specific for each department within the company.

Additional important point in the change management is the information flow. This is often underestimated, and teams are spending a lot of time with communication instead of work itself.

 

Have a digital strategy available

Excel ….

Yes. It is unbelievable, but still used very often instead of systems/solutions. Because it is easier and more flexible, less costly. Right. In short run.

We are living in digital age. A lot of tasks could be automated. IT could do nowadays everything. And should serve the business.

Remaining questions:

  • What is the Return On Invest (ROI)?
  • How company can support the created/implemented solution and change after implementation (to remain flexible like “Excel” when changes have to be performed)?
  • Should company have on-board specialists for that or work with programmer’s project by project only?

All these questions should come from understanding what is important for business (strategy, tactics) and what should/could IT help out of this strategy. Out of this a Digital strategy is coming out.

A digital strategy nowadays is a must. Otherwise earlier or later the company will lose their positions:

  • On speed
  • On costs
  • On communication
  • On service level
  • On prediction
  • Etc…

Artificial Intelligence Systems to support a better and easier process for Procurement Team     

For sure a lot of topics could be solved by artificial intelligence. We should still not forget, that we should provide the process for that.

Each company is different, it is on different stage of the development. Depending on this a strategy, tactics, solution is used. Is it only a mathematics, which could be programmed?

  • A portion – yes
  • All – not yet

What is possible to solve with AI? Examples?

Good examples of working AI to not to listen marketing, but to have a look on real cases:

 

Wish all of us a good year

 

Viktor Mikla
Founder/CEO, 
Expert in Business Development and Business Processes